South Africa is First Country to Lower Rates After Fed Cut — Update

By Alexandra Wexler

JOHANNESBURG--The South African Reserve Bank cut its main repo rate on Thursday, the first central bank to follow the Federal Reserve's move to lower borrowing costs.

The SARB lowered the main repo rate--the interest rate at which a country's central bank lends money to commercial banks--to 8% from a 15-year high of 8.25%, as inflation eases amid a stronger rand currency, lower oil prices and a more steady national electricity supply.

SARB Governor Lesetja Kganyago said rates should stabilize "slightly above 7%" next year. The decision brings to an end a tightening cycle that began at the end of 2021, as a response to the coronavirus pandemic.

The Fed's decision will likely affect the actions of central banks around the world, paving the way for others to cut rates without affecting the interest-rate differential between themselves and the U.S., which should cushion the impact on local currencies. Analyst consensus was for both the U.S. and South Africa to cut this month.

The decision, and the further cuts that are forecast over the next year, will likely fuel economic growth by bringing relief to South African consumers, who have weathered the highest interest rates in more than a decade since May last year- a response to the surge in energy and food prices following Russia's full-scale invasion of Ukraine.

On Thursday, the Bank of England left its key interest rate unchanged, after lowering 25 basis points in August, the BOE's first cut in more than four years. Norway's central bank also kept rates on hold Thursday. Brazil's central bank raised its key rate on Wednesday, after cutting several times since July last year.

"Overall, global conditions have become more favorable, but there are still risks," Kganyago said. "A soft landing is looking more likely, after the worst inflation surge in a generation, but it is not inevitable."

Inflation in South Africa has been easing, with the headline rate falling to 4.4% in August, a three-year low, from 4.6% in July, and down from 5.3% in January.

In 2024, the SARB expects GDP growth of 1.1%, unchanged from the bank's July estimate. For 2025, the SARB projects a 1.6% expansion.

Write to Alexandra Wexler at alexandra.wexler@wsj.com

(END) Dow Jones Newswires

September 19, 2024 10:01 ET (14:01 GMT)

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